The Great Depression was a catastrophic economic event that had its origins in the United States in the aftermath of World War I but soon spread to the rest of the world. The roaring twenties, as they came to be known, brought prosperity and considerable wealth to the Americans. However, the good times were not to last, and a series of economic crises led to one of the most severe economic downturns in human history and ultimately to another World War.

War and major historical events don't occur in a vacuum. World War II can be debated in this sense. The causes of World War II include but are not limited to political takeovers, ideologies, militarism, invasions, and the continuation of nationalism from World War I. But what are the underlying crises that put Germany and Japan over the edge? More specifically, what were the catalysts for Germany's Lebensraum and Japan's imperialism?

The first sign of trouble came in 1929 when the American stock market declined after a small crash in March of that year. Despite issues being apparent, the market recovered and continued on an upward trajectory until September. The stock prices began to slump, but it was not until October 24, known as Black Thursday, that the market crashed 11% at the opening bell. A failed attempt to stabilize the market led to another 12% crash on Black Monday, October 28. Finally, on Black Tuesday, the market saw another 11% drop, marking the end of the bull market and the beginning of the Great Depression.

The stock market crash had widespread ramifications that went beyond the United States economy. The crisis had dire consequences for the global economy, leading to widespread unemployment, poverty, and political instability. Many people were impoverished, and entire countries went bankrupt as they were unable to service their debt, resulting in several nations defaulting on their loans. For example, the German economy, which was still recovering from the ravages of World War I, was hit especially hard. The country was unable to service its debt, leading to the rise of Hitler and the Nazi party, who capitalized on the unrest and the economic devastation for their political gain.

Crisis in Germany

The Great Depression had a profound impact on Germany, plunging the country into economic and political turmoil. The country was heavily reliant on foreign loans, and when the Wall Street Crash hit, American banks withdrew their support. This led to a crisis in Germany that was exacerbated by the collapse of the Credit Anstalt in Vienna. Investors lost confidence in Germany, and the Reichsbank lost hundreds of millions of marks in a matter of weeks. This financial crisis put enormous pressure on Germany, which was already grappling with rising violence from nationalist and communist groups.

The impact of the Great Depression was felt across all sectors of German society. Widespread unemployment reached 25%, and by 1932, 90% of German reparation payments had been cancelled. The government was afraid to increase spending for fear of returning to the hyperinflation that had plagued Germany in 1923. The unemployment rate reached nearly 30%, and the Weimar Republic was hit hard by the depression. American loans to help rebuild the German economy came to an abrupt end, exacerbating the country's economic problems.

The political landscape in Germany was dramatically altered by the Great Depression, with the rise of extreme political ideologies on both the left and the right. The Nazi Party, which had been a fringe group, saw a huge increase in support following the 1929 stock market crash. The party won 18.3% of the vote in the September 1930 elections, while the Communist Party also made gains. Moderate political forces like the Social Democratic Party, the Democratic Party, and the People's Party lost seats. This created a political vacuum that allowed extremist groups to gain ground.

The German banking crisis of 1931 was a pivotal moment that not only had far-reaching economic consequences but also directly contributed to the rise of Nazism and ultimately led to the devastation of World War II. The crisis was sparked by the collapse of the Credit Anstalt in Vienna in May, which triggered a wave of investor withdrawals and set off a chain reaction of financial panic throughout Europe. In Germany, already destabilized by political turmoil and the rise of Nazi and communist movements, the banking crisis quickly reached a critical point.

The Reichsbank, Germany's central bank, lost millions in just a few weeks, as confidence in the government's financial policies plummeted. The situation was exacerbated by the demand for war reparations, which drained much-needed funds from Germany's struggling economy. In response, U.S. President Herbert Hoover called for a moratorium on these payments, a move that angered Paris but temporarily slowed the crisis down. However, the underlying problems remained, and the crisis continued to escalate.

An international conference in London failed to produce any significant solutions, but a standstill agreement in August 1931 froze Germany's foreign liabilities for six months. Emergency funding from private banks in New York, as well as the Bank of International Settlements and the Bank of England, provided some relief, but the crisis persisted. Industrial failures and business closures continued to mount, spreading beyond Germany to Romania and Hungary. By the end of 1931, the German economy was in shambles, with mass unemployment, rampant inflation, and widespread poverty.

The social and political consequences of this economic catastrophe were profound. The crisis destabilized the Weimar Republic and gave rise to extremist movements like the Nazi Party and the Communist Party. Nazi propaganda capitalized on the widespread anger and frustration among the German people and presented Hitler as a strong leader who could provide solutions to their problems. His promises of national unity, economic recovery, and revenge against those who had imposed the war reparations resonated deeply with many Germans.

The next two years were marked by increased street violence between Nazis and Communists, while governments under President Paul von Hindenburg increasingly relied on rule by decree, bypassing the Reichstag. Hitler ran for the Presidency in 1932, and while he lost to the incumbent Hindenburg in the election, it marked a turning point in German politics. Both the Nazi Party and the Communist Party gained ground in the years following the crash, with both parties possessing a Reichstag majority following the general election in July 1932.

Although the Nazis lost seats in the November 1932 election, they remained the largest party, and Hitler was appointed as Chancellor the following January. The government formation deal was designed to give Hitler's conservative coalition partners many checks on his power, but over the next few months, the Nazis manoeuvred to consolidate a single-party dictatorship.

Hitler followed an autarky economic policy, creating a network of client states and economic allies in central Europe and Latin America. By cutting wages and taking control of labor unions, plus public works spending, unemployment fell significantly by 1935. Large-scale military spending played a major role in the recovery. However, these policies had the effect of driving up the cost of food imports and depleting foreign currency reserves, leading to economic impasse by 1936.

Richard Overy, in The Dictators: Hitler’s Germany, Stalin’s Russia, in outlining the paths taken by both leaders of their totalitarian dictatorships, notes that economics was central to their goals but not a means to an end: “[Hitler] regarded a healthy economy as the indispensable foundation for the achievement of other priorities: the construction of the social utopias, the military defense of the dictatorships, the achievement of social peace, a distant future age of perpetual prosperity.” Hitler’s Germany was the second largest industrial power and trader in the world prior to the First World War but had suffered a precipitous drop between 1919 and the Second World War. The continued build-up of war-related industry continued in Germany throughout the 1930s and “… suggests that in excess of 70 per cent of all industrial investment in Germany by 1938-9 anticipated the waging of war. (Overy 2004, 398-399)

Nazi Germany faced a choice of either reversing course or pressing ahead with rearmament and autarky. Hitler chose the latter route, which according to Ian Kershaw "could only be partially accomplished without territorial expansion" and therefore war. The impact of the Great Depression on German society and politics played a crucial role in Hitler's rise to power and his subsequent decision to pursue territorial expansion. The economic and political turmoil of the Great Depression created a fertile ground for extremist groups, and the collapse of the Weimar Republic paved the way for the Nazi regime.

Bibliography

Boog, Horst, Werner Rahn, Reinhard Stumpf, and Bernd Wegner. Germany and the Second World War: Volume 6: The Global War. Oxford: Oxford University Press, 2001.

Overy, Richard J. The Dictators: Hitler's Germany and Stalin's Russia. New York: W. W. Norton & Company, 2004.

Tooze, Adam. The Wages of Destruction: The Making and Breaking of the Nazi Economy. New York: Penguin, 2007.

Wilson, Peter H. Iron and Blood: A Military History of the German-Speaking Peoples Since 1500. Cambridge: Harvard University Press, 2023.